Individuals who are not able to work due to a disability are given financial help through a program run by the Social Security Administration (SSA) called Social Security Disability Insurance (SSDI). However, many disabled people still struggle to make ends meet despite this support. People who have been injured or became disabled due to an accident where they were not at fault might look into pursuing a lawsuit settlement as an option for financial assistance, especially for medical bills. However, people often wonder how receiving a settlement from a case affects their SSDI benefits.
The eligibility and benefits of SSDI may be impacted by receiving a lawsuit settlement. Settlements can affect the amount of SSDI payments received and can be regarded as resources or income. To ensure accurate benefits, reporting any settlement to the Social Security Administration is advised.
The following article will examine how a litigation settlement might affect SSDI benefits. We will review the different kinds of settlements that could impact SSDI, how the SSA handles settlements, and what recipients can do to safeguard their payments.
Types of Lawsuit Settlements That May Affect SSDI
Settlements in some lawsuits won’t have an impact on social security disability insurance benefits. Depending on the sort of settlement received, a settlement’s effect on SSDI benefits may vary.
Settlements can generally be divided into two types: compensatory settlements and non-compensatory settlements. Compensatory settlements are meant to make up for losses or injuries that have occurred.
An example of a compensatory settlement would be one made for personal harm caused by a vehicle accident or medical negligence. Because these settlements are frequently paid to replace lost wages or income, which are considered when evaluating SSDI eligibility and payments, they may impact SSDI benefits.
On the other hand, non-compensatory settlements are meant to support a handicapped person financially without making up for a specific loss or harm.
A payment for a lawsuit alleging handicap discrimination would be an example of a non-compensatory settlement. Because they are not granted for lost wages or income, these settlements may not impact SSDI benefits.
Treatment Of Settlements By The Social Security Administration
Determining SSDI eligibility and benefits is the responsibility of the Social Security Administration. When someone applies for SSDI, the SSA evaluates the applicant’s medical disabilities, employment history, and income to determine eligibility and benefit amounts.
The SSA will consider the type of settlement and how it impacts the person’s income and resources when a lawsuit settlement is reached. Some settlements, such as worker’s compensation, can affect SSDI payments received.
Compensatory Settlements And SSDI
Because SSDI benefits are meant to replace lost wages or income when you are disabled, compensatory settlements which include lost wages may impact those benefits. The SSA considers settlements when determining monthly benefit amounts.
Settlements for lost income or earnings may be counted as income, which might lower SSDI benefits.
For example, suppose a person receives $50,000 in compensation for lost wages resulting from a personal injury in an automobile accident. A lump-sum payment is made in the settlement. Additionally, the person gets $1500 in SSDI benefits each month. The SSA will count the payment as income for the month it is received.
In this instance, the person’s monthly take-home pay will total $51,500. The SSA will determine the new countable income of the individual after deducting the relevant income exclusion.
The person may lose some or all of their SSDI payments for that month if their new countable income exceeds the SSDI maximum permitted income.
It is important to remember that not all SSDI benefits are considered when determining income. When calculating countable income, the SSA removes a percentage of an individual’s SSDI benefits. An amount is excluded based on the person’s countable income from other sources.
The applicable income exclusion is calculated as follows:
- The SSDI payout is not countable if other sources of countable income are less than the Federal Benefit Rate (FBR).
- The amount of eliminated SSDI payments is equal to the difference between countable income and the FBR, divided by two.
- The amount of SSDI payments that are withheld when countable income from other sources exceeds 250% of the FBR is equal to the sum of the difference between countable income and 250% of the FBR multiplied by 0.2 and the difference between 250% of the FBR and the FBR divided by two.
Non-Compensatory Settlements And SSDI
Because SSDI benefits are given for lost wages or income, non-compensatory settlements may not impact them. Typically, these settlements are given to cover disability-related costs like medical bills or home improvements.
However, non-compensatory settlements can be viewed as resources and affect SSI benefits. The SSA considers an individual’s resources, such as cash, bank accounts, stock, and other assets, when evaluating Supplemental Security Income (SSI) eligibility and benefit amounts. Settlements paid in one sum might be viewed as resources, affecting SSI benefits.
For illustration purposes, imagine a person being awarded a $50,000 settlement for handicap discrimination. A lump-sum payment is made in the settlement. The person deposits the compensation into a savings account.
The $50,000 is a resource and could be added to the person’s allotted resources for SSI eligibility. The individual may lose their SSI payments if their resources exceed the permitted amount.
Steps To Protect SSDI Benefits When Receiving A Settlement
For disabled people, receiving a settlement can be a crucial source of income. Still, it is important to take precautions to safeguard SSDI payments when doing so.
- Report The Settlement To The SSA
To guarantee appropriate benefits, it is crucial to notify the SSA of any settlement. The loss of future benefits may occur from overpayments caused by failure to record a settlement. The settlement will need to be examined by the SSA to see how it affects benefit amounts and eligibility for SSDI and SSI.
- Work With An Attorney
Working with a lawyer familiar with settlements and SSDI can be advantageous. A lawyer may help ensure the settlement is set up to maximize SSDI benefits and reduce its effect on eligibility. They can also guide you through the SSA reporting process.
- Consider A Special Needs Trust
When receiving a settlement, a special needs trust is a type of legal arrangement that can be used to safeguard SSDI benefits. The trust, run by a trustee, is given the settlement money. For SSI eligibility and benefit amounts, the trust’s assets are not considered. Instead, the money can be used to cover costs not covered by SSI related to a disability, like home renovations or transportation.
Personal Injury Settlement vs. SSDI And SSI Benefits
The answers to important questions concerning how a personal injury settlement would affect the monthly payments you presently get from Social Security Disability Insurance or Supplemental Security Income may vary from person to person, depending on several circumstances. However, in general, for SSDI and SSI:
- SSDI: SSDI benefit payments are unaffected by the settlement of your personal injury claim.
- SSI: In general, a personal injury settlement has a negative impact on SSI benefits.
The Social Security Administration oversees the SSDI and SSI programs. Personal injury settlements do not impact the two SSA programs the same since they have different qualifying conditions and are aimed at helping based on different criteria.
SSDI is an earned benefit, whereas SSI is a needs-based program for those whose income and assets are below a predetermined poverty level. Payments for each benefit come from a different federal fund.
Before proceeding with a personal injury settlement, it is wise to consult with a lawyer who specializes in obtaining SSI benefits for people with exceptional financial needs who are disabled, because doing so can have a detrimental impact on those benefits.
The SSI monthly benefit amounts for 2023 are published by the SSA and include a “monthly maximum federal benefit amount of $914 for an eligible individual, $1,371 for an eligible individual with an eligible spouse, and $458 for an essential person.”
Typically, the maximum federal Supplemental Security Income payment amounts increase with the cost-of-living increases that apply to Social Security benefits. The latest such increase, 8.7 percent, became effective in January 2023.
You will lose your eligibility for SSI if you exceed these limits because a financial hardship no longer exists. Additionally, you risk having your healthcare coverage reduced or canceled because Medicaid benefits are based on your financial hardship.
For those without access to private health insurance or Medicare to cover the costs of medical treatment, hospitalization, and prescription drugs, these two situations can result in a catastrophic loss of benefits.
Solutions for Avoiding Losses
Transferring the proceeds from the personal injury settlement into a special needs trust is one of the legal options available to prevent losing SSI payments. Through a trustee who will oversee the trust’s assets and make payments on their behalf, this trust structure can protect disabled people.
The SSA does not consider the personal injury settlement money to change SSI eligibility because the person does not directly control the trust. It prevents personal injury compensation funds in the special needs trust from counting towards Medicaid requirements.
When establishing your special needs trust, it is crucial to work with an experienced attorney because there are stringent compliance regulations pertaining to these trusts and the distribution of their assets.
A highly experienced and knowledgeable lawyer can assist you in understanding the possible value of your personal injury claim and the potential effects it can have when applying for SSDI and SSI programs. To evaluate where you stand financially, your lawyer can calculate the monthly value of a prospective personal injury settlement and compare it to the monthly social security benefit amount.
Your income and assets affect your program benefits. Therefore, Medicaid and the SSA need to know how much of a settlement you receive. You must disclose all personal injury settlements to them. According to current regulations, you must notify the SSA of any personal injury compensation amount within ten days of receiving it.
SSA Benefits and Personal Injury Settlements: Key Takeaways
If you are an SSDI beneficiary, then:
- The settlement for your injury will not impact your SSDI benefits.
- You are not required to notify the SSA of your SSDI settlement.
- Existing SSDI benefits may affect a personal injury settlement.
If you are an SSI beneficiary:
- Your SSI monthly benefits from the SSA may be terminated or reduced due to your personal injury settlement.
- Any settlement for a personal injury must be reported to the SSA.
- Without compromising your SSI payments, a special needs trust might be able to safeguard your personal injury settlement.
Finally, you could question whether pursuing a personal injury claim is worthwhile if your SSDI benefits are on the higher end of the compensation scale. Although there is no assurance that a personal injury claim will result in a larger payment value than SSDI benefits, in certain cases, a substantial settlement will.
Compensation for losses and damages that SSDI cannot cover may be included in settlement negotiations for personal injury claims, including:
- Medical costs now and in the future
- Care at a nursing home or expert at-home care
- Distress and suffering
- Mental suffering
- Lost earnings and potential earnings
- Changes in life quality
The Social Security Administration’s SSDI and SSI programs are governed by numerous rules. When faced with additional financial resources resulting from a personal injury settlement, it can be tough to know what to do. To safeguard your benefits and obtain the full and just compensation you are entitled to from a personal injury settlement, it is to your best advantage to hire an expert attorney.
Conclusion
For disabled people, receiving a lawsuit settlement can be a significant source of income. Still, it is important to fully understand how settlements may affect SSDI benefits. Settlements for compensation might be counted as income, which would lower SSDI benefits.
Settlements that are non-compensatory may be viewed as resources, affecting SSI benefits. People receiving SSI can take measures to safeguard their benefits and maximize their financial security by informing the SSA about the settlement, engaging with a highly experienced lawyer, and looking into a special needs trust.
